Wednesday, June 26, 2013

SPX - Keep It Simple, Stupid

I started writing a macro note on what this morning's negative GDP revision means for stocks. But I stopped, as I had to examine my head more than once while typing it. So I said, screw this nonsense and stick with charts.

S&P 500 is nearing an important pivotal moment. If 20 dsma crosses below 50 dsma, there is a very strong possibility of price heading down to 200 dsma.

click on chart to enlarge

Saturday, June 22, 2013

Simplicity May Be The Key

I would like to continue with the theme of my previous post (read here), in which I expressed my opinion on what may be the best approach in the rest of the year's trading. While my chart below may look very simple, it will be anything but simple to figure out why the long-term interest rates may move up towards the resistance. The fundamentals behind this probable move are going to be confusing at times. On one hand U.S. economy may look like it is accelerating, but on another hand the world economies are slowing down, and we can't be totally isolated from that. Pundits will be worried about the housing market collapsing, as the mortgage rates will rapidly rise. Also, the Fed will be a huge factor in pushing the rates up, as it may taper its purchases of Treasuries and MBS a lot sooner than many expected. "The great escape" may finally start when folks get their July bond funds statements, as that was the month last year when the rates hit the absolute low. Annualized losses (on principal) will scare the money out of those bond funds. The trillion dollar question is whether "the great escape" will turn into "the great rotation".

I showed in my post on May 12th how rapidly rising rates may affect the equities. Pardon my gloating, but this is exactly what is happening now. In my earlier days as blogger, I was told by one of the regular readers that my posts read more like a prediction of a sure thing to happen. He suggested that I should use "may" instead of "will" in my assessments of future market direction (and I used the word "may" ever since). This brings up an interesting point. Could the opposite be happening now to many market participants? As Bernanke surprised them with sudden hawkishness at his press conference, bond, equity, and commodity bulls bailed instantaneously and proceeded to do so in the matter of hours. Consequently, the QEInfinity expectations were totally erased, and TaperTrade is now fully in effect. It looks like many market players thought that the Fed may taper at some later point, but were absolutely sure that it will not in the near future. Market was not prepared for this event, hence the volatility ensued. It may take some time for things to settle down, as market participants take positions in their new and somewhat uncomfortable seats. Like I pointed out in my post just 10 days before equities topped on May 22nd, it took a full year to adjust to rapidly rising interest rates back in 1994 (read here). It may happen again.

These are truly important times for swing and position traders, as there are tectonic shifts occurring right before our eyes. You start to really appreciate the simplicity of charts in times like these. Follow the charts, as they will show you the way.

click on chart to enlarge

Thursday, June 20, 2013

SPX and DAX Technicals

This morning I feel like oversimplifying things may be the way to go forward. It will take some patience and art of scaling in and out of positions to trade in current conditions. So with this in mind I drew some important lines and decided to share with my readers. SPX and DAX may retrace the entire ramp-up from mid April. The instrumental word in previous sentence was "may", as there are multiple supports on the way down.

click on charts to enlarge

Sunday, June 16, 2013

SPX Scenario - Father's Day Present

What gift does a dad really want? He wants to know where SPX is going next. It's all about being right and trading with the market.

So what does the current picture remind us of? I have shown this before, and will continue to do this until it stops working. SPX is trading last year's scenario (left part of the chart below). Vertical white line shows where we currently are compared to it. A wedge has formed at the lower trendline of the uptrend channel. There will probably be a breakdown with successful retest of the low at 1598. After that a strong bounce into the upper BB on daily chart may occur. If this scenario is continued, then the high at 1687 will most likely not be breached, and a protracted sell-off will ensue after resistance at BB holds. I would be looking for a 10% correction at that time (starting in July).

Happy Father's Day!

click on chart to enlarge

Tuesday, June 11, 2013

SPX Futures Update - Technicals and the Fed

This morning I am more confident that my previous inverted head and shoulders scenario may still take place (view my chart here). I originally thought that 1620 on ES would be the head. Well, market had a different plan. I must adjust, as that is the only way to survive in this game. So 1620 remains just as pivotal, but it may now be the point of right shoulder. If this is the case, a 50-point projection above the neck will take the price to new high @ 1696. Could it happen right after FOMC meeting? Fed would have to not taper, or not even mention the tapering (a stretch), in order for that high to occur.

It is important to point out that should 1620 not hold on two daily closing basis, last week's lows would probably get retested, with 1605 as the last line in the sand on the way there. Something would have to go seriously wrong at the FOMC meeting for lows not to hold, or it may happen even sooner because of nervous anticipation of tapering at the meeting. This last scenario may actually give Fed some room to maneuver at the meeting, where they could go into the details of how they will taper, or even do a slight tapering (a stretch again), since the market will already be down, pricing in some kind of policy change. It's all about the Fed from here to Q2 earnings reports.

Thursday, June 6, 2013

Power Of Charts

If you have not spent enough time studying charts, I seriously suggest you start paying close attention. Today was a textbook kind of day. SPX futures slammed into a support zone and bounced 28 points straight up, all the way into resistance zone, in just four hours.
For those who think that technical analysis is nothing but voodoo, look at my chart below and my post from last night, in which I outlined what would likely happen. Maybe all of this is just luck? :)

click on chart to enlarge

Wednesday, June 5, 2013

SPX - Which Scenario Will Prevail?

Now that 1620 on SPX futures gave way, there is no reason to think that this sell-off is any different than the other two I pointed out on my daily chart below. Vertical white dotted lines show where I think we currently are in reference to those previous times. So if those scenarios are to repeat, there may be a bounce between right here to 1590, possibly capped by 1620 - 1633, followed by sideways consolidation in the range, after which further weakness may ensue. My guess is that 1552 - 1576 (previous two bull market highs) on SPX will provide enormous support. Should 1620 and 1633 be regained, that may negate my range-bound outlook, and the rally to new highs may resume. One thing is for sure - this market will not be kind to traders who can't change their mind quickly enough.

click on charts to enlarge

Monday, June 3, 2013

Quick Trading Note On Transports

Dow Jones Transportation Average may have found its short-term support today. The price stopped at a laminate of the lower trendline of the rising wedge and horizontals. I expect a quick resolution to the upper trendline of the wedge. But I want to remind that rising wedge is a bearish pattern. So I also expect that after series of new highs, which could last until the first part of July, there will probably be a nasty reversal to the downside, resulting in breakdown of this wedge.

click on chart to enlarge

Saturday, June 1, 2013

S&P 500 - Roadmap To June FOMC Meeting

After Friday's nasty close many traders expect more downside next week. I understand and share the frustration of those who want this market to puke so they can buy it much lower. Unfortunately, they may have to wait even longer. The darn thing will probably still go up after Monday morning's (RTH) gap down to 1620 on SPX futures, in my humble opinion.
Below is my roadmap to FOMC meeting on June 18-19. I think it is going to be yet another inverted head and shoulders. At this time I cannot predict what happens after the meeting, it all depends on the statement. But if you put a gun to my head, I would say SPX will probably go up to make another all-time high above 1700 in the beginning of July, and then it may finally have that long-awaited 10 - 15% correction in the second part of this summer, trading down to most of the unfilled gaps in the process. But let's just get to June FOMC meeting first.

click on chart to enlarge